VA Loan Gift Funds Requirements

If you're using a VA loan to buy a home, you may wonder if someone can give you money to help with the down payment or closing costs. This is a payment gift, and it's allowed with certain rules and requirements. The person giving you the gift is known as the donor, and they'll need to provide a gift letter template specifying the details.

The gift money can be used for the down payment or closing costs, but there are payment gift rules to follow. You must qualify for a VA and meet other eligibility requirements to get a VA loan. With the help of a payment gift, you may be able to buy a home sooner than you thought!

What are VA Loan Gift Funds?

If you're an eligible Veteran using a VA home loan to purchase a home, you may be able to receive gift funds from a family member or friend to help with your closing costs and prepaid expenses. Here's what you need to know about VA loan gift funds requirements.

Your donor can not be a real estate agent or broker selling you the home. And the gift can not come with any strings attached – like the requirement that you buy a specific type of insurance from the donor; or use their services for repairs or maintenance on your home.

Generally, the donor must provide a written statement (gift letter) that says the money is a true gift and doesn't need to be repaid. They'll also need to provide their relationship to you and proof of their ability to make the gift (such as bank account statements).

Once you've received the gifted funds, deposit them into your bank account and provide the deposit documentation to your lender. The money should then be used towards your down payment and closing costs.

If you have any questions about whether you can use gifted funds for your VA loan, be sure to ask your lender.

VA Loan Gift Funds Requirements

If you're looking to use VA loan gift funds can be used to cover the cost of your home purchase, there are a few things you need to know. First, the donor (person giving you a gift) must be a close relative (spouse, child, parent, sibling, aunt, uncle, or in-law). Second, the gift cannot be conditional – meaning that the funds cannot be given with the expectation of repayment.

Ask your lender if you have any questions about using gifted funds for your VA loan purchase. They'll be able to provide you with all the information you need to make sure everything goes smoothly.

Who Can Gift Money for a VA Mortgage?

It is possible to receive a gift toward your home purchase from almost anybody, but there is one key stipulation: the gift cannot be from someone interested in the transaction.

An interested party is someone who has an interest in your transaction and is involved in it in some way, such as a builder or developer, another broker, a real estate agent, or even the seller himself. Although, sellers are permitted to provide a sales concession. If desired, you may also use gift money as part of your down payment.

Friends and family members may “donate” money to the buyer so that they can afford the charges associated with the purchase. However, specific conditions must be met for a VA loan before gift money may be used.

The only requirement is that the donor has no financial interest in your buying property. So, for example, a real estate agent or builder could not give you gift funds.

Is There a Gift Funds Limit With VA Home Loans?

There is no limit to the amount that may be donated, regardless of whether the funds come from parents, grandparents, or an employer, so long as the donor satisfies the requirements of the VA loan program (as described above).

The amount of money that may be given to a veteran to cover the closing and prepaid expenses are not subject to any restrictions other than the gift letter and related documentation.

On the other hand, there are repercussions for taxes that might come into play here. The yearly gift exclusion limit will increase to $16,000 per person in 2022. This determines the maximum amount a donor may give away without informing the Internal Revenue Service of the transaction.

If mom and dad provide the gift funds, each donor can contribute $16,000 each.

How to Use Gift Funds When Applying for a VA Loan

If you're using gift funds to help purchase your home, there are a few things you need to know. First, you'll need to have a letter from the person gifting you the funds that say they are indeed a gift and not a loan. The letter should also state the donor's relationship with you.

Next, you must ensure that the gift(s) meet the VA's requirements. Gift funds can only be used for specific purposes, including closing costs, down payment, and prepaid expenses.

Finally, remember that you may still be required to provide some of your funds even if you use gift funds. The VA has strict guidelines to ensure veterans can afford their homes, so don't rely solely on gifts when applying for a loan.

Does the VA Allow Gift Funds for Reserves

In most cases, the Veteran does not need cash reserves. However, the borrower must have three months of PITI documented for each property for the rental income to be considered if the borrower owns several properties.

Gift money is not permitted to be utilized to satisfy reserve requirements.

If Someone Gives Me Money, Why Do I Need a Gift Letter?

If you're using gift money from a family member or friend to buy a home, you might wonder why you need a gift letter. After all, the money comes from someone you know and trust, so why all the extra paperwork?

The answer has to do with mortgage loan underwriting standards. The lender may need to document that the gift funds are indeed a gift, not a loan that must be repaid. The gift letter is one way they can do that.

The lender wants a complete picture of your financial condition when you apply for a mortgage loan.

Requirements for the Gift Letter

The good news is that the requirements for the gift letter are pretty straightforward. The letter should include the following:

The name, address, and relationship of the donor
The amount of gift money being given
A statement that says the money is a gift and does not need to be repaid
The date of the transaction
Signature of both the donor and recipient

Sometimes, lenders may also require proof of where the money came from, such as bank statements or canceled checks. If you have any questions about what your lender requires, ask. They'll be happy to help you get everything in order so that you can move forward with your home purchase.

What Happens if the Donor Changes Their Mind?

If the donor changes their mind about gifting the funds after the loan has been approved, the borrower may not close on the loan if the gift funds are needed to cover the closing and prepaid costs.

Conclusion

If you're getting a VA mortgage, you may be able to get help with your VA loan closing costs with gift money. But there are some requirements you'll need to meet to qualify. First, the gift recipient must be an eligible donor, like a parent or grandparent. Second, they'll need to provide a gift letter that shows they have the financial ability to give you the gift.

And finally, the gift can't be used for any other purpose besides your closing expenses. If you can meet all these requirements, getting help with your settlement costs with gift funds can be a great way to finance your home purchase.

SOURCE:
VA Pamphlet 26-7, Revised Chapter 4: Credit Underwriting